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Pre-opening Comments for Tuesday October 27th
U.S. equity index futures are slightly higher this morning. S&P 500 futures are up one point in pre-opening trade. Index futures responded positively to the S&P Case/Schiller home price index for August released at 9:00 AM EDT. On a year-over-year basis, home prices fell 11.3% for the largest 20 U.S. cities. However, on a month-over-month basis, 19 of 20 cities showed modest gains. Home prices were helped partially by the $8,000 tax credit for first time home buyers.
Third quarter earnings on both sides of the border continue to pour in. Most exceeded consensus estimates. U.S. companies that reported better than expected third quarter since the close yesterday include VF Corp., Health Management Associates, U.S. Steel, Johnson Controls, L3 Communications, Wynn Resorts and Avery Dennison. In Canada, Rogers Communications reported higher than consensus third quarter earnings.
Terms of the “Too Big To Fail” legislation are expected to be announced today. The Financial Services sector will come under greater regulation under this legislation.
Agrium is up slightly this morning after TD Newcrest upgraded the stock from Speculative Buy to Buy. Target price is $61. ‘Tis the season for Agriculture stocks to move higher.
Texas Instruments added 2% this morning after FBR Capital upgraded the stock from Market Perform to Outperform. Target price is $31. ‘Tis the season for semi-conductor stocks to move higher!
TransCanada could come under pressure in early trading this morning on media comments that Canadian government has decided not to precede with its investment in the $16.2 billion Mackenzie Valley Pipeline project TransCanada was to be the operator and partial owner of the pipeline.
Technical Action Yesterday
Technical action by S&P 500 stocks was bearish yesterday. One S&P 500 stock broke resistance (Radio Shack) and eleven stocks broke support (SunTrust Banks, Bank of America, Zions Bancorporation, First Horizon National, Agilent, Monsanto, Genworth Financial, Integrys Energy, Public Service Enterprises, UPS and Vulcan Materials. Notice the concentration of breakdowns in the Financial Service sector. The Up/Down ratio fell from 5.91 to (383/73=) 5.25
Technical action by TSX stocks also was bearish yesterday. Six TSX Composite stocks broke support (Goldcorp, Kinross, Silver Standard Resources, Sun Life, Thomson Creek Metals and Boardwalk Equities). None broke resistance. Notice the concentration of breakdowns in precious metal stocks.
Tech Talk has altered the way the TSX Up/Down ratio is calculated. Previously, trusts were excluded in the calculation. However, an increasing number of trusts are converting back to common shares. Now is an appropriate time to include trusts in the calculation. Including trusts, the TSX Up/Down ratio eased yesterday from (170/24=) 7.08 to (165/29=) 5.69
Interesting Charts
The summer seasonal trade in gold bullion came to an end yesterday. Stochastics fell below 80% and gold’s daily trading range fell below its previous daily trading range. MACD and RSI also have recorded short term sell signals.
Chart courtesy of StockCharts.com www.stockcharts.com
Gold stocks are responding to lower precious metal prices. Goldcorp and Kinross broke support and established intermediate downtrends. Other big cap gold stocks are testing key support levels.
Chart courtesy of StockCharts.com www.stockcharts.com
Chart courtesy of StockCharts.com www.stockcharts.com
Seasonal influences for gold have a brief period of weakness followed by a revival from the second half of November to early February.
Silver also has favourable seasonal influences from the second half of November to early February. Silver tends to outperform gold during this period.
Charts courtesy of SeasonalCharts.com www.seasonalcharts.com
Trigger for weakness in gold and other commodities yesterday was strength in the U.S. Dollar. Short term momentum indicators for the Dollar turned positive. Upside potential is to the Dollar’s 50 day moving average currently at 76.95. Intermediate trend remains down.
Chart courtesy of StockCharts.com www.stockcharts.com
A major reason for strength in the U.S. Dollar yesterday was an increase in U.S. long term interest rates. Ten year Treasuries added 0.08% to3.59%, a ten week high.
Investors are responding to the plethora of Treasury issues coming to market this week.
Chart courtesy of StockCharts.com www.stockcharts.com
The S&P 500 Index, Dow Jones Transportation Average and TSX Composite Index broke their intermediate uptrend yesterday.
Chart courtesy of StockCharts.com www.stockcharts.com
Chart courtesy of StockCharts.com www.stockcharts.com
Chart courtesy of StockCharts.com www.stockcharts.com
Bullish Percent Index for TSX Composite stocks fell below its 15 day moving average yesterday, another technical signal that an intermediate correction has been established.
Chart courtesy of StockCharts.com www.stockcharts.com
Equities continue to come under pressure after releasing third quarter results despite exceeding consensus estimates. Examples yesterday included Verizon, Corning and McGraw Hill.
Chart courtesy of StockCharts.com www.stockcharts.com
ETF News
PIMCO Grows Its Treasury ETF Brand with Two New Debuts
October 22, 2009 at 10:40 am by ETF.com
PIMCO took another step to solidify its exchange-traded fund business by pushing two recent filings to the market. Its newest two funds launched on October 22.
The first of the two funds is the PIMCO 20+ Year Zero Coupon U.S. Treasury Index Fund (ZROZ), which will track the B of A Merrill Lynch Long Treasury Principal STRIPS Index with a portfolio that does not directly mirror its underlying index. In the prospectus, PIMCO notes that the fund may diverge slightly from its underlying index due to a difference in holdings and will cost .15% in annual expenses.
PIMCO 3-7 Year U.S. Treasury Index Fund (FIVZ) is another fund that will track a similar index, the Merrill Lynch 3-7 Year U.S. Treasury Index. This ETF also come with a .15% annual expense rate, according to the prospectus.
Prepping an ETF Play for an Oddly Calm Climate
October 22, 2009 at 10:26 am by ETF.com
Investors are looking at the current stock market climate, finding it calm in contrast to the volatility of last year’s price action. Using ETFs, investors can take advantage of limited volatility to earn a profit when the volatility returns.
The iPath S&P 500 VIX Short-Term Futures ETN (VXX: Quote, Profile, Advanced Chart, News) offers investors an ability to time volatile markets via a note investment that tracks the changes in the VIX futures. Volatility indicators are currently at a 14-month low, Minyanville.com reports, and could soon make a comeback as companies release their fourth quarter earnings.
With the volatility index trending towards its lows, analysts expect an upswing could occur if retail outlets miss their mark on fourth quarter earnings. Weak consumer spending (70% of GDP) during the holidays could send the markets back into a tailspin, proving that consumers do not yet have enough confidence in the economy to make big purchases.
ETFSecurities Hopes to Corner the Metals Market with Palladium ETF
October 22, 2009 at 10:18 am by ETF.com
After crossing the Atlantic to start two popular gold and silver funds in the United States, ETFSecurities has filed to create a palladium exchange-traded fund. Palladium investing is popular overseas, and it is currently one of the world’s rarest metals.
The SEC filing for the new fund alleges that the price for palladium is impacted by a variety of factors including: hedging activity by palladium producers, speculation, interest rates, and demand from auto manufacturers to produce catalytic converters. By actively stating that the price of palladium is determined by a multitude of factors, it is clear ETFSecurities expects some criticism from the CTFC and the SEC before being approved.
The fund will trade under the name ETFS Platinum Trust (PALL) on the NYSE Arca. It will be the first fund to offer exposure to physical palladium.
Van Eck files with the SEC
October 23, 2009-Van Eck has filed a prospectus with the SEC for the following fund:
MARKET VECTORS INDIA SMALL-CAP ETF
Disclosure: Mr. Vialoux does not own securities mentioned in this report.
Disclaimer: Comments and opinions offered in this report at www.timingthemarket.ca are for information only. They should not be considered as advice to purchase or to sell mentioned securities. Data offered in this report is believed to be accurate, but is not guaranteed.
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Discussions from the Tech Talk Forum:
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October 27th, 2009 at 6:47 am
Hi Don,
In the seasonal period for Gold which you indicated has just ended, do you feel there has been a disconnect between bullion and gold stocks? It seems like although gold itself has had a very strong run, gold stocks have not equally reflected the same run up. In light of that, is it not better to buy bullion instead of gold stocks in the next period of seasonality which is expected in November ?
Regards,
Richard
October 27th, 2009 at 6:54 am
Hi Don,
Just wondering what your technicals and opinion is about Shoppers Drug (SC-T) please. I was listening to Ross Healy speak yesterday and he was recommending a short at $37. Do you agree and if so when do you feel this short should be covered ?
Regards,
Richard
October 27th, 2009 at 7:49 am
copied from yesterday:
Hi Don,
would you consider buying some DWI since the sell off from 12.10 recently for the telecom seasonal trade? I would assume this could still have a lot of downside movement since i cannot really see any support levels. what are your thoughts?
October 27th, 2009 at 8:11 am
I want to learn about ETF’s ( specially HNU,HND, HOU, and HOD). How they value this etf,s and future prices. When future contract renew and 6 months future prices.
Have you wrote articles about ETF?
Thanks
smita
October 27th, 2009 at 8:34 am
If the S&P breaks its 50MA support where will its next lower support be?
October 27th, 2009 at 10:32 am
Hi Richard. Quite a divergence! Gold equity indices such as the AMEX Gold Bug Index and the Philadelphia Gold and Precious Metals indices in U.S. Dollars significantly outperformed gold during the recent July/October period. In contrast, the TSX Gold Index in Canadian Dollar significantly underperformed gold. Both of those trends remain intact. Currency has been the difference. Preferred investment vehicle for Canadians considering gold or gold equities is an investment priced in U.S. Dollars, but fully hedged. Today’s Tech Talk mentions that Silver is a more interesting play during the next period of seasonal strength than gold. And don’t forget Platinum. Platinum’s seasonality starts later and end later than gold and silver, but has consistently outperformed both during the January to April period.
October 27th, 2009 at 10:36 am
Hi Richard. Shoppers currently has a mixed technical profile. Intermediate trend recently turned positive. The stock recently moved above its 50 day moving average. However, it recently found resistance at its 200 day moving average. Short term momentum indicators currently are neutral. Strength relative to the TSX Composite has been negative since July.
October 27th, 2009 at 10:39 am
Hi Smita. Best to go directly to the source, the Horizon Beta Pro site:
http://www.hbpetfs.com/
October 27th, 2009 at 10:41 am
Hi CCCFighter. The S&P 500 Index is about to test its 50 day moving average at 1,049.21. Next support is at 1,019.95, the low set in early October.
October 27th, 2009 at 3:23 pm
Hi Don, thanks a lot for the wealth of information I find here. I’m a new diy Canadian investor and just starting to learn. Can you tell us what the seasonality is on EAT/UN and your opinion on buying once the indicators are there?
October 27th, 2009 at 5:05 pm
Hi Isabela. Thanks for your request. Sorry, haven’t completed a seasonality study on EAT/UN. It’s chart currently does not have an attractive technical profile.